SAP Slows Rollout Of Midmarket On-Demand Business Apps

CEO Henning Kagermann disclosed the change in plans during a conference call Wednesday announcing the Walldorf, Germany-based software company's first-quarter earnings. While the vendor reported 14 percent sales growth during the quarter (using U.S. generally accepted accounting principles at constant currency), revenue from the U.S. took a hit largely due to the strengthening Euro against the U.S. dollar.

When SAP debuted Business ByDesign last year, the company said it expected the new service to attract 1,000 new customers this year and generate $1 billion by 2010. Wednesday Kagermann said its will take SAP 12 to 18 months longer to achieve those goals.

Kagermann said SAP is adjusting the pace of the Business ByDesign rollout, but not its overall strategy. "We need more time to take additional steps towards optimizing the end-to-end process of delivering, selling and running the solution," he said.

Kagermann did say sales of the SAP All-in-One package, an on-premise application set also targeted at mid-size customers, were up 18 percent in the quarter while sales of the BusinessOne package for small businesses grew 38 percent. SAP's channel partners sell both products.

For the quarter ended March 31 SAP reported sales of 2.46 billion Euros ($3.82 billion), up 14 percent from the same period one year earlier. Revenue from software and software-related services increased 15 percent to 1.74 billion Euros ($2.70 billion). Kagermann said sales of software and software-related services grew 24 percent in constant currency.

But net income for the quarter fell 22 percent to 242 billion Euros ($376.6 million). Kagermann said currency conversions from the strengthening Euro cut approximately 10 percent or $46 million from the company's operating income.

While Kagermann said revenue generated by software and software-related services in the U.S. increased by 20 percent using constant currencies, the strengthening Euro led to a 13 percent decline in revenue in the Americas to 217 Euros or $337.5 million. "We continue to watch the U.S. market closely and we are in close contact with our customers and clients," Kagermann said. "The U.S. market in the first quarter was tougher than expected. However, the number of deals remained healthy while deal sizes became smaller. This is expected in a more challenging environment where companies put more scrutiny on their investments."

Kagermann added that 50 percent of sales in the U.S. in the quarter were to new customers, "and we are gaining market share against our competitors." He said the company has seen no signs of slowing sales in Europe (including the Middle East and Africa) and Asia/Pacific where sales increased 23 and 47 percent, respectively.

Kagermann also said integration of business intelligence software vendor Business Objects, which SAP acquired in January for $6.8 billion, "is completely on track."

A report from Wedbush Morgan Securities analyst Michael Nemeroff said that license revenue in the Americas may have declined by 2 percent on a constant currency basis and by as much as 7 percent excluding revenue contributions from Business Objects.